Burnett's Trustee v Grainger and another
| Jurisdiction | England & Wales |
| Judge | LORD HOBHOUSE OF WOODBOROUGH,LORD HOPE OF CRAIGHEAD,LORD BINGHAM OF CORNHILL,LORD RODGER OF EARLSFERRY,LORD HOFFMANN |
| Judgment Date | 04 March 2004 |
| Neutral Citation | [2004] UKHL 8 |
| Date | 04 March 2004 |
| Docket Number | No 3 |
| Court | House of Lords |
[2004] UKHL 8
HOUSE OF LORDS
The Appellate Committee comprised:
Lord Bingham of Cornhill
Lord Hoffmann
Lord Hope of Craighead
Lord Hobhouse of Woodborough
Lord Rodger of Earlsferry
and another
My Lords,
I have had the privilege of reading in draft the opinions of my noble and learned friends Lord Hope of Craighead and Lord Rodger of Earlsferry. For the reasons which they have given I also would make the order which Lord Rodger proposes.
My Lords,
I have studied carefully the opinions of my noble and learned friends Lord Hope of Craighead and Rodger of Earlsferry and they have satisfied me that the interlocutor pronounced by the Extra Division was in accordance with the law of Scotland. The appeal must therefore be refused.
I am however by no means satisfied that this state of the law is either desirable or a necessary consequence of fundamental principles of Scots law. In Heritable Reversionary Company Ltd v Millar (1892) 19 R (HL) 43, 52 Lord Macnaughten began his opinion with the words:
"My Lords, if this House were compelled to uphold the decision under appeal, I rather think I should be inclined to doubt whether the law of bankruptcy in Scotland was in a condition altogether satisfactory."
In the present case, I do feel compelled to uphold the decision of the Extra Division but share the view of its consequences which Lord Macnaughten expressed with such studied understatement. It results in the creditors of Mrs Burnett being unjustly enriched at the expense of the Rev. and Mrs Grainger and I can see no compelling ground of logic or policy which justifies such a result.
The unjust enrichment arises from the fact that the mistake of the Graingers in failing to record the disposition in their favour before the permanent trustee means that they are not only unable to assert title to the flat (a consequence which might have been reasonable if the contract had remained uncompleted) but that the permanent trustee is also entitled to keep the money they paid. To say that this is a consequence of their own fault is in my opinion no answer. Mistake is generally regarded as a ground for relief against unjust enrichment, not a reason why the victim should have to suffer the consequences of an error which has caused no prejudice to anyone else.
Two reasons of policy and principle are put forward to justify the rule; the strict division in Scots law between real and personal rights and the importance of maintaining the integrity of the register. But both of these principles have in the past been compromised in cases in which justice was thought to require it. The right of recovery of an owner whose property has been obtained by fraud and the right of a beneficiary under a trust are personal rights, but Scots law has had no difficulty in holding that a disponee of heritable estate takes subject to such rights.
As for the conclusiveness of the register, it is said that unless the title acquired by the trustee in sequestration defeats the claims of a purchaser who has paid for the property and received an executed disposition, no purchaser from a trustee could know for certain that property in his name was not subject to a prior unrecorded disposition to a purchaser. So be it. But neither can he know whether it was subject to a prior declaration of trust, and for more than a century it has been settled that trust property does not pass to the trustee in sequestration, even if he has recorded a notice of title. No one seems to have found this a great inconvenience. Indeed, Mr Hodge for the respondent accepted that the position would have been altogether different if the disposition to the Graingers had included the words "And pending the recording of this disposition, I hereby declare myself trustee of the subject hereby disponed for the purchasers absolutely." Such a declaration, accompanied by delivery of the disposition to the purchasers, would appear to me to satisfy the requirements of a declaration of trust stated by Lord Reid in Allan's Trs v Lord Advocate 1971 SC (HL) 45, 54. But the existence of the declaration would be equally unknown to any subsequent purchaser from the trustee in sequestration. It is a strange form of conclusiveness that can be so easily defeated.
I agree with my noble and learned friends that the decision in Sharp v Thomson 1997 SC (HL) 66 is distinguishable. But, for the reasons I have given, I think it would have been better if it had not been necessary to distinguish it.
My Lords,
I have had the advantage of studying in draft the speech which has been prepared by my noble and learned friend Lord Rodger of Earlsferry. I am in full agreement with it. In view of the importance of the case however, I should like to add a few words of my own to explain why I too would affirm the order of the sheriff granting decree in terms of the second crave of the initial writ.
This exceptional and troublesome case presents itself at first sight as a competition between two parties only. On the one hand there are the appellants, to whom in implement of missives of sale a disposition of the subjects was delivered by Mrs Burnett's solicitors in exchange for the payment of the purchase price. On the other there is the respondent, the permanent trustee. He was aware that the subjects had been disponed to the appellants. But he seeks to rely on the fact that when he recorded his notice of title to the subjects, for which he paid nothing, he came first in the race to the register. This simple view of the case tends to suggest that the situation in which the appellants now find themselves is unfair. They paid the price for the subjects to which they obtained entry in exchange for delivery of the disposition on the date of settlement. They are now being told that the subjects are vested in the respondent and that they can no longer acquire a good title to them. In the result they have been deprived of their right to become the owners of the subjects, and they have lost the price which they paid for them. This is not something that could have happened while Mrs Burnett remained solvent. Why then, it is asked, should the respondent be able to deprive them of that right in his capacity as the permanent trustee in Mrs Burnett's bankruptcy?
This view of the case however is only one part of a much more complex story. The full details have not been revealed to us. We know little of the background. But we do know that the permanent trustee acts under the statute for each and every one of Mrs Burnett's creditors, not for himself as an individual: Stewart v Jarvie, 1938 SC 309, 316, per Lord Moncrieff. So the contest is more accurately seen as one between the appellants and the general body of Mrs Burnett's creditors. It is on their behalf that the respondent is claiming to be entitled to the subjects which the appellants bought from her. And it seems likely that the creditors, or some of them, were already active in seeking to protect their position before the date of sequestration. They were entitled to do this by means of diligences against her moveable and heritable property, unaffected by any personal obligations that she may have entered into subsequently. One of the effects of a sequestration is to equalise the rights of creditors who have executed diligence: section 37 of the Bankruptcy (Scotland) Act 1985. Another is that it places the permanent trustee, on behalf of all the creditors, in the position of an adjudging creditor with respect to the debtor's heritable property: section 31(1)(b) of the 1985 Act. Accordingly a more complete picture of the contest, and a guide to its resolution in a way that is consistent with Scots property law, may be obtained by examining the range of remedies that are available to creditors in general before the ultimate remedy of sequestration is resorted to and the way in which, in the event of a sequestration, the Act seeks to protect their rights as creditors.
The passing of ownership: the real right
At the heart of Scots property law, as Professor Burns points out in the opening sentence of the chapter on infeftment in his Handbook on Conveyancing, 5th ed (1938), p 160, lies the maxim traditionibus, non nudis pactis, transferuntur rerum dominia. The adoption of this rule of the Roman law as part of Scots law can be traced at least as far back as Stair, The Institutions of the Law of Scotland (1693 edition), III ii 5. He accepts that some kind of possession is needed to accomplish real rights, so that thereby they may be "more manifest and sure". Erskine, An Institute of the Law of Scotland (Nicholson's edition), II i 18 too acknowledges the need for "greater certainty" and for the delivery of possession, or at least some public act, "by which it may appear that the former proprietor has given up his right." A statutory exception to what is required to transfer property in corporeal moveables applies in the case of sale. The property in goods passes by force of the contract of sale independent of delivery: Sale of Goods Act 1979, sections 17 and 18. But the rule that delivery is required to transfer ownership has always applied, and continues to apply, to all transactions relating to heritable property. Burns, using language appropriate to the feudal system of land tenure with which he was familiar, explains at p 160 how the principle operates:
"To clothe the feuar with a real right in the lands he required, and still requires, more than the charter; he requires delivery. By that is meant delivery, not of the charter (though that also is necessary), but of the lands. Such delivery is infeftment."
Section 1 of the Abolition of Feudal Tenure...
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